Disposals may help S&N raise bid

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The Independent Online

Smith & Nephew is drawing up plans for the £200m sale of Centerpulse's dental implants business to help it fund an increased offer for the Swiss medical group. Smith & Nephew's bankers are working on a number of plans to fund a higher bid in the event that US's Zimmer trumps its £1.6bn agreed deal, as it has promised to do later this month.

Smith & Nephew is drawing up plans for the £200m sale of Centerpulse's dental implants business to help it fund an increased offer for the Swiss medical group. Smith & Nephew's bankers are working on a number of plans to fund a higher bid in the event that US's Zimmer trumps its £1.6bn agreed deal, as it has promised to do later this month.

Analysts are already sceptical that Smith & Nephew has the financial firepower to beat Zimmer and last night there were indications that Centerpulse may be hoping to entice further bidders.

Smith & Nephew, whose chief executive is Chris O'Donnell, believes it can increase its debt to as much as £1.5bn without harming its credit rating, so it could easily increase the cash component of its offer for Centerpulse by £500m.

Those who have met Smith & Nephew management in the past few days believe a commitment to auction the dental implants business soon after acquisition could improve the group's financial flexibility further. The Smith & Nephew share price has fallen since news of Zimmer's interest on fears the UK group will be drawn into a bidding war.

The dental business had turnover of 131m Swiss francs (£62m) last year, an increase of 18 per cent, and analysts believe it might fetch up to £200m.

Zimmer has indicated it will offer £2bn in cash and shares for Centerpulse unless there are nasty surprises uncovered during the due diligence process. Centerpulse has established data rooms in New York and Zurich and insists it will give Zimmer the same access to management as it has granted Smith & Nephew.

Zimmer is favourite to win because its shares are more highly-rated than those of Smith & Nephew. Max Herrmann, analyst at ING Financial Markets, said: "The question is not whether Smith & Nephew can match Zimmer, the question is, if it gets in to a bidding war, who is the most likely to win, and that hasn't changed."

The appointment of Goldman Sachs, the aggressive investment bank, as adviser to Centerpulse this week, raised speculation that the Swiss group could hope to reawaken interest from US buyers who dropped out of the auction of the company earlier this year.

One observer said: "When it was a solely European merger it was something of a sideshow, but now Zimmer is involved, some US rivals may think they want to stop it getting such a big European footprint."

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